Rates Down, Stay Short: Catalyst

Declining consumer loan rates and narrowing spreads in both 15- and 30-year fixed-rate mortgages mean credit unions should stay short in their funding and focus on quality assets, according to the July monthly Credit Union Rate Survey from Catalyst Strategic Solutions in Plano, Texas.

According to Catalyst’s corresponding July Market Overview and Data Report, the pace of inflation increased in June, both on the producer and consumer levels, but remains well within the acceptable upper limit established by the Federal Reserve. Stable prices helped retain consumers’ disposable income and support spending growth. Wholesale consumer prices have increased at a 2% annualized pace over the past year, the report said.

“Consumer loan demand has improved this year based on the strength of higher vehicle sales,” wrote Brian Turner, chief strategist for Catalyst Strategic Solutions, part of Catalyst Corporate Federal Credit Union. “With mortgage originations expected to fall as much as 40%, stronger consumer loan demand is critical to the industry’s overall loan growth in 2014.”

According to the rate survey, average loan rates were slightly lower than the previous month’s levels, with auto loan pricing spreads narrowed by 12 bps to +175 basis points over comparable U.S. treasuries. Mortgage pricing spreads are +119 and +172 bps, respectively, for 15- and 30-year fixed rate mortgages, a margin that is narrower than what was seen in June.

Share rates changed little in July, with share and term certificate rates remaining virtually stagnant since the start of the year. Average certificate pricing spreads for certificates equal +30, +10 and -13 bps, respectively, for one- two- and three-year terms, the report said.

“With the current rate outlook, credit unions should continue to retain a short-term funding duration,” Turner wrote in his analysis. “Retain highest-tiered money market rate no greater than the prevailing one-year term certificate rate.”